Risk sharing in healthcare is a financial arrangement where providers (hospitals, physician groups, or health systems) accept responsibility for some or all of the cost of caring for a group of patients. Instead of simply billing for each service and sending the tab to an insurer or government program, providers agree to hit spending and quality targets. If they keep costs below those targets, they share in the savings. If they exceed them, they may owe money back. The goal is to shift incentives away from doing more procedures and toward keeping patients healthier.
How Traditional Payment Creates Risk
To understand risk sharing, it helps to see where risk sits in the traditional system. Under fee-for-service payment, providers bill for every office visit, test, and procedure. The financial risk lands almost entirely on the payer, whether that’s an insurance company, Medicare, or an employer. If a patient needs expensive care, the payer absorbs the cost. Providers have no financial reason to reduce unnecessary spending, and in fact earn more when they deliver more services.
Risk sharing flips this dynamic. By tying a portion of a provider’s revenue to total spending and quality outcomes, these arrangements give doctors and hospitals a direct stake in avoiding waste, coordinating care, and preventing complications before they become costly.
One-Sided vs. Two-Sided Risk
Risk-sharing contracts generally fall into two categories, defined by how much financial exposure the provider takes on.
In a one-sided (upside-only) arrangement, providers can earn bonus payments if they deliver quality care below a spending benchmark, but they don’t owe anything if they exceed it. This is the gentler entry point. It rewards efficiency without punishing overruns, making it attractive to organizations new to value-based contracts.
In a two-sided arrangement, providers share in savings when spending comes in low but also owe money back to the payer when spending runs high. The potential reward is larger because the financial commitment is greater. CMS describes downside risk as “uncertainty associated with potential financial losses,” and organizations that accept it typically have more sophisticated data systems and care management programs in place.
The distinction matters for quality. A large-scale analysis published in JAMA Health Forum found that two-sided risk contracts outperformed fee-for-service on every clinical quality measure studied. One-sided risk and pay-for-performance models also beat fee-for-service on most measures, but two-sided risk consistently produced the strongest results. Blood glucose control, for example, scored 25.5 percentage points higher under value-based payment than under fee-for-service. Blood pressure control showed a 23.3-point advantage.
Common Risk-Sharing Models
Shared Savings Programs
The most prominent example in the U.S. is Medicare’s Shared Savings Program, where groups of doctors and hospitals form accountable care organizations (ACOs). Each ACO is responsible for the total cost and quality of care for an assigned population of Medicare patients. CMS sets a spending benchmark, and if the ACO keeps spending below it while meeting quality standards, it receives a share of the savings.
The 2024 results illustrate the scale: 476 ACOs representing about 10.3 million patients participated. Roughly 80% of those patients were in ACOs that earned performance payments, totaling $4.1 billion. Medicare itself saved $2.5 billion relative to benchmarks. Per-patient net savings rose from $207 in 2023 to $245 in 2024. On the other side, 16 ACOs owed shared losses totaling $20 million, a small fraction of the overall program.
Bundled Payments
Bundled payment programs assign risk for a single episode of care, like a knee replacement or a heart surgery, rather than for a patient’s overall health over time. CMS sets a target price for the entire episode, covering the hospital stay, surgeon fees, rehab, and any complications within a defined window. If total spending comes in under the target, the provider keeps the difference. If it exceeds the target, the provider pays the overage back.
In some bundled models, the hospital receives a single lump-sum payment upfront and is responsible for distributing it to every clinician involved in the episode. Surgeons and other specialists submit claims to Medicare at zero dollars and get paid directly by the hospital out of the bundle. This creates a powerful incentive for all providers involved to coordinate closely and avoid unnecessary costs.
Capitation
Capitation is the most aggressive form of risk sharing. A provider or health plan receives a fixed monthly payment per patient, regardless of how much care that patient actually uses. If the patient stays healthy and needs little care, the provider retains the surplus. If the patient requires expensive treatment, the provider absorbs the loss.
Research comparing capitation to fee-for-service has found that capitated systems generally produce lower costs. Several studies found no statistically significant differences in patient outcomes, though some reported that capitation was associated with worse quality of care. The results depend heavily on how the program is designed and whether safeguards are in place to prevent undertreatment.
How Risk Adjustment Protects Providers
A legitimate concern with risk sharing is that providers who treat sicker, more complex patients could be unfairly penalized. If your patient population has more chronic disease, your costs will naturally be higher. Risk adjustment is the mechanism designed to address this.
Medicare uses a system that calculates a risk score for every patient based on their age, sex, disability status, and diagnosed conditions. Each diagnosis carries a coefficient reflecting its expected cost. A patient with diabetes, heart failure, and chronic kidney disease generates a higher risk score than a relatively healthy 65-year-old. Higher scores translate to higher payments, so providers caring for sicker populations receive more funding to account for the added complexity.
This system isn’t perfect. Coding accuracy matters enormously, since a provider who doesn’t document diagnoses thoroughly may receive a risk score that underestimates their patients’ actual needs. But the intent is to level the playing field so that providers aren’t discouraged from taking on high-need patients.
Why Many Providers Hesitate
Despite the potential rewards, entering risk-sharing contracts is genuinely difficult. A scoping review published in Risk Management and Healthcare Policy identified barriers across three categories.
The technical challenges are substantial. Providers need robust data systems to track spending and outcomes across their patient population in real time. Many practices lack the IT infrastructure to do this, and some clinicians aren’t comfortable working with electronic records and analytics dashboards. Defining what counts as an “episode” of care, determining which provider is accountable when multiple specialists are involved, and setting fair benchmarks all require significant analytical capability.
The financial hurdles are just as real. Shifting to value-based payment often requires upfront investment in care coordinators, data analysts, and new technology before any savings materialize. Smaller practices with thin margins may not have the capital to absorb those startup costs. And if the incentives offered under a risk-sharing contract feel too small relative to the effort and exposure involved, providers will rationally choose to stay with fee-for-service.
Administrative complexity rounds out the picture. Risk-sharing contracts add layers of reporting, reconciliation, and regulatory compliance. Organizations may be participating in multiple programs with different rules, timelines, and quality measures simultaneously. Legal concerns around data sharing between institutions, bureaucratic delays in implementation, and misalignment between federal and local policy priorities can all slow adoption.
What This Means for Patients
If you’re a patient, you may never sign a risk-sharing contract yourself, but these arrangements shape the care you receive. When your doctor’s organization is in a shared savings program, you’re more likely to get proactive outreach: calls from care coordinators, reminders for preventive screenings, and follow-up after hospital stays. The financial structure rewards your provider for keeping you out of the emergency room rather than waiting until you show up in one.
The data supports this. Value-based payment models outperformed fee-for-service by an average of 6.7 percentage points across 15 standardized quality measures, with the largest gains in managing chronic conditions like hypertension and diabetes. Two-sided risk models, where providers had the most skin in the game, consistently produced the best quality scores.
The risk for patients is the flip side of cost pressure. When providers have a financial incentive to spend less, there’s always some possibility of undertreatment, delayed referrals, or skipped tests. Quality measures and oversight exist specifically to counteract this, but the tension between saving money and providing enough care is inherent in every risk-sharing model.